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The Decline of the 10-Year Treasury: Implications for Fed Policy (Macro Musings Blog, 6 min read) The ongoing decline in the 10-year UST yield leaves the Fed with reduced options within its current policy toolbox. To counteract this the Fed can use a dual reaction function where the money base is used as a target when rates are below zero, target nominal GDP and incorporating helicopter money.
Are QE and Conventional Monetary Policy Substitutable? (International Journal of Central Banking, 36 page read) Doubling the size of a central bank’s balance sheet is equivalent to a 3pp cut in the policy rate. But QE can only substitute effectively for rates cuts when LT rates have room to fall.
The Information Channel of Monetary Policy Has Disappeared in the US (VoxEU, 3 min read) Improved Fed communication (including release of FOMC minutes) and forward guidance on policy has removed the Fed’s ‘information advantage’ and led to the information channel on monetary policy – changed behaviour after an unexpected policy announcement – disappearing.